Archive for the ‘Finance’ Category

“Our message was weak; our ground game was insufficient; we weren’t inclusive; we were behind in both data and digital; our primary and debate process needed improvement,” Party Chair Priebus said of Mitt Romney and the GOP’s 2012 loss. “There’s no one solution. There’s a long list of them.”

The report outlines the need to reach out to women, African-Americans, Asian, Hispanic, and gay voters. They are going to do this by hiring staffers across the country to begin engaging those communities. They support comprehensive immigration reform, shortening the primary process with fewer debates, moving the convention date earlier in the summer, and investing in more technology.

“To be clear, our principles are sound, our principles are not old rusty thoughts in some book,” Priebus said, but the “report notes the way we communicate our principles isn’t resonating widely enough.”

Sally Bradshaw, a GOP strategist who was also on the committee, added that the GOP “needs to stop talking to itself” and needs to open the tent in order to win presidential elections in the future.

So the Republican Party is admitting that it can no longer win elections depending exclusively on the votes from old angry white men. That is progress.

The problem is that they are blaming their loss on a failure to communicate. They continue to insist that if women, minorities, young people, unions, and educated professionals voted for Obama ONLY because they didn’t understand what the Republican message really was.

A wonderful example of this delusional thinking is how Chairman Priebus handled the question of marriage equality. He held up Republican Senator Rob Portman’s recent public support of same sex marriage as an example of this new philosophy of inclusiveness.

“I think it’s about being decent,” Priebus said. “I think it’s about dignity and respect that nobody deserves to have their dignity diminished or people don’t deserve to be disrespected.

“I think that there isn’t anyone in this room, Republican, Democrat or in the middle, that doesn’t think that Rob Portman, for example, is a good conservative Republican.

“He is. And we know that. … I think that party leaders have to constantly remind everybody that we can’t build a party by division and subtraction. We can only build the party by addition and multiplication. We get that and that’s going to be our endeavor.”

When asked if the Republican Party supported Portman’s position, Prebius said, “It’s his decision. It’s not a matter of whether I support his decision. I support him doing what he wants to do as an elected person and as an American. If that’s his opinion, then I support him having that opinion.”

In other words, the Republican Party is going to continue to oppose marriage equality but will allow some who hold opposing views on the subject to still call themselves Republicans. The fact that this is newsworthy is testimony to the depths of the problem.

Conservative Republicans are so invested in their positions, that they can’t imagine why anyone familiar with those positions could oppose them.

They can’t imagine why women would object to being told that rape isn’t that bad, only whores use contraception, or if they become pregnant, regardless of the circumstances, they lose the right to make decisions about their own health.

They can’t imagine why Hispanic and Asian citizens object to being told that their efforts to fix a broken immigration system are just a thinly veiled attempt to secure amnesty for criminal behavior.

They can’t imagine why young people reject a party that says that homosexuality is sinful and college education should be available only to those who can afford it.

They can’t imagine why educated people reject a party that says that says that creationism is a science and climate change is a hoax.

The Republican Party doesn’t have a communications problem. Voters clearly understand where the Republican Party stands. The real problem is that voters REJECT Republican Party positions.

The best evidence of this is the most recent budget debate. House Republicans passed a reworked version of the Ryan budget that voters had just rejected in November. In fact, this new budget was, if anything, more cynical than the previous one. If you recall, the campaign budget had a math problem. This new budget solves some of the math problem by KEEPING the recently approved tax increases that Ryan and Romney campaigned so hard against. It also kept the taxes included in Obamacare, which Ryan claimed were job killers, while repealing the rest of the healthcare bill.

The Republican Party doesn’t have a communication problem. In fact, some of the steps they have recommended (fewer debates and a shorter primary season) may be intended to reduce the amount of information the party shares with the public.

The Republican Party has a philosophical problem. They underestimate the intelligence of the American voter and their ability to tell the difference between what the party says and what it does.

We’ve spent some time examining the underlying historical and psychological reasons for Zombie Politics.

An additional bit of data came out today suggesting that liberal and conservative differences can be predicted by how our brains respond to risk. Fundamental physiological differences could determine political preferences. That further re-enforces wisdom of our founding fathers in setting up a government which requires compromise in order to function.

That still leaves the open question of what to do about the current problem where some conservative Republicans are so invested in their particular political views that they appear unable to compromise.

Fortunately, we live in a democracy where the majority of voters rejected the most recent Republican campaign based primarily on Zombie positions. Since politicians, just like the rest of us, share survival as a primary motivation; conservative politicians have already taken notice.

We’ve already seen John Boehner disciplining the worst Tea Party offenders in the House in an effort to regain control of that group.

Karl Rove has blamed the Zombie Politics of the Tea Party for the November Republican loss. He has pledged to run more moderate Republicans against Tea Party incumbents and protect moderate Republicans against primary attacks from the radical right.

Scott built his political career on opposing Obamacare. His base of support has been the Tea Party.

He is clearly not the ideologue he has appeared to be. He made the calculation that he will gain more support from changing his position than he will lose. Florida Hospitals in particular were very concerned about how their costs would rise if Florida declined to participate in this expansion of Medicaid. So at the end of the day, Scott demonstrated that he wasn’t crazy after all. He was simply a politician taking advantage of whatever opportunities he could to stay in office. His erstwhile Tea Party backers are furious, but he has decided, just like Karl Rove, that it is time for him to move on.

Over the next several weeks we are going to see another sorting out of those who really are Zombies versus those who have simply been dressing up that way in order to avoid being eaten.

That’s because the Republicans are again poised to lose the battle over the sequester cuts. The Wash Post explains why very simply and it is reflected in this graph.

Regular people have no idea what the sequester is right now and, even once it kicks in, aren’t likely to pay all that close of attention to it unless they are directly affected by it.

Given all of these facts, and the realities that even conservative politicians know all too well, why are Republicans still committed to what appears to be a suicide mission?

Zombie Politics

Republicans are still invested in the smaller government, low tax, cut spending philosophy that the American people rejected. They feel that they lost credibility in the tax hike compromise that was part of the fiscal cliff deal. If they cave now on sequester cuts, they fear that they will have lost whatever support they have left with their base. They are terrified of what Obama will do next if he wins this battle too. They also believe that they will be able to blame Obama for whatever economic damage the sequester cuts cause and perhaps ride that to a Senate majority in 2014.

The problem is that if they go through with their plan, it will not only backfire on them for the reasons listed above. It will re-enforce the majority view that conservative Republicans DO NOT have the best interests of the country at heart. It will further erode the whole conservative philosophy that government is bloated and wasteful. Instead, virtually every American will experience what life is like without the government services that we depend on and the underlying economic support that government spending provides. The most direct effect will be that unemployment jumps (it already has) as the economy continues to contract (it started in December). The stock market will tank. Air travel will slow. Major defense contracting states (mostly republican) will bear the brunt of the job losses. Meat and poultry prices will rise because of inspection shortages which will affect supply. Head Start classes would close. SBA loans would stop. Federal Research grants would stop. Grants supporting Mental Health treatment would stop. Courts will slow because of lack of investigators and attorneys. More first responders will lose their jobs. Tax return processing and refunds would slow.

Every American will discover that federal state and local governments do a lot of good things. They will discover that government is NOT bloated, inefficient, and wasteful. Government is not a collection of faceless uncaring bureaucrats. The government is us. It is our relatives, friends, and neighbors. They will discover that government is a vital part of everyday life and that the Republican vision of dramatically reducing the size of government is really a nightmare. And they will AGAIN punish Republicans in 2014 as they did in 2012 for intentionally damaging the economy for political purposes.

Conservatives and Liberals look at the world differently. Because of the conservative need for alignment between their beliefs and the world around them (cognitive closure), they are much more likely to hold beliefs that are out of sync with the facts. That is at first a counter intuitive claim. But the reality is that when conservatives encounter facts that call their beliefs into question, they will deny or warp the facts rather than re-examine the beliefs. That’s called Moral Intuitionism.

The result in the current political scene is a series of political positions that have no basis in fact, but continue to drive the conservative movement.

We’ve looked at a few.

The claim, starting with Ronald Reagan, that the government is the problem. That caused conservative Republicans, among other things, to oppose Hurricane Sandy relief. It also was behind the debt ceiling debate and the claim that government doesn’t create jobs.

Government is not the problem, because in a democracy we the voters choose the government, and surveys have shown that voters generally like the government services that they receive. What conservatives are really saying when they say government is the problem is that liberal government policies are the problem – and that is certainly something the liberals are going to dispute.

The claim, starting again with Ronald Reagan, that lower tax rates will increase tax revenues. That was refined some under GWB, that lower tax rates on the rich will stimulate the economy. We’ve already seen that this is not an effective standalone economic strategy.

Some others that are well known include opposition to climate change, insistence that creationism is a science, and opposition to abortion, immigration, and gay rights.

Roots of Gridlock

Another aspect of how this behavior influences politics that we haven’t looked at is regional distribution of liberals and conservatives. Where did that come from?

Perhaps we shouldn’t be surprised that at least one historian, David Hackett Fisher, traces it back to colonial times.

The north was settled mainly by English farmers, the south by Scots-Irish herders. They each brought their centuries of mutual distrust with them. Herders have an honor culture which is important to being able to be a successful nomad. Their wealth can literally walk away, so they have to respond quickly and forcefully to any real or perceived threat. When those threats have been identified, they depend on eye-for-eye retaliation to protect themselves. Farmers, on the other hand, are more secure because it is much more difficult to steal land. They develop a culture of interdependence, government, and the rule of law.

The farmers in the northeast had come from a Europe where monarchs imposed civilization on their subjects. The subjects eventually overthrew the monarchs and demanded self-determination, but retained the concept that a strong democratically elected central government was the best way to prevent the country from falling back into anarchy.

The herder culture followed settlers west. Initially it was a male dominated anarchy with few laws and many honor killings. As women moved west to help their husbands work the farms and ranches that they had created; churches, laws, and government followed. But the west didn’t go through the monarch phase where a strong central government essentially disarmed the populace and imposed the rule of law by force. Instead women imposed the rule of law by compromise and allowed men to continue support the honor culture.

The political distributions we see today are a direct result of these two cultures mixing. That mix now, however, goes all the way down to neighborhood. Conservatives prefer to live in neighborhoods and towns with conservatives. Liberals prefer to live in neighborhoods and towns with liberals. Toss in a dose of gerrymandering and you have congressional districts where extremism is rewarded and compromise punished.

In North Carolina, congressional districts are either so red or blue that they trend well above the national average in that regard, said David Wasserman, House of Representatives editor at the Cook Political Report.

There are “diametrically opposed viewpoints just across the highway median from each other,” Wasserman said. As a result, in votes like the fiscal cliff showdown, members of Congress “are simply responding to what their districts want.”

“The dirty little secret is that redistricting only explains part of polarization,” Wasserman said. “Congressional districts are polarized partly because Americans have polarized with their feet. It makes it easier for partisan line drawers to draw those lines.”

The result is what we see playing out in Congress today.

Gridlock.

The 112th House was roughly 50% more polarized in terms of makeup than that of the 102nd, which convened from 1991 to 1993.

The 112th’s Senate was more polarized than the 46th Senate, which was in office from 1879-1881, just after the Reconstruction era that followed the Civil War.

Summary

Liberals and Conservatives do not effectively communicate with each other. That’s because these are emotional discussions about beliefs for Conservatives rather than discussions about fact which is the liberal preference.

The country reflects these differences geographically because of our history.

The current government reflects this differences because of how our representative government is structured.

So is this the doom of democracy or is there a way forward from gridlock to a functioning government?

In previous posts we’ve gone through the issues surrounding debt and built a case for economic growth and lower unemployment as viable methods to reduce our debt. Austerity programs do not stimulate economic growth or lower unemployment, at least in the short term. They actually make things worse.

We’ve also looked at the REAL problem which is the rate of growth in Healthcare costs. Austerity programs do NOTHING to bring down the costs of healthcare delivery. Economic growth also does nothing about this problem. Yet deficit hawks are not talking about this as the middle term problem we have to solve. Instead they focus exclusively on reducing the debt.

Why?

Zombie Politics.

This term was originally coined by John Sides. He defines it as “ideas about politics that have become so cemented in conventional wisdom that it is virtually impossible to dislodge them. It doesn’t matter what the data says, or what published research says. Zombie politics means that even though the ideas are dead, they just can’t be killed.”

Here are a few examples of Zombie Politics in action.

The House prevented any tax increases until after the 12/31 deadline passed and even then only enough Republicans agreed so that it could pass with overwhelming Democratic support. That’s because a core belief of current Republicans dating back to Reagan is that low tax rates for high income earners have significant economic impact. Even though this theory has been widely discredited, most recently by the Congressional Research Service; it lives on as the cornerstone of Republican politics.

Hurricane Sandy relief was voted down because, to quote Paul Ryan, “Unfortunately [the bill] refuses to distinguish — or even prioritize — disaster relief over pork-barrel spending.” Rep. Peter King (R-N.Y.), a powerful House Republican who represents New York’s Long Island, which sustained billions of dollars in storm damage, refuted those claims. “The House bill never contained any of those extraneous provisions,” he said.

New Jersey Gov. Chris Christie (R) said on Wednesday that the failure to vote on the aid bill was the result of “toxic internal politics” in the Republican Party. “Americans are tired of the palace intrigue and political partisanship of this Congress,” Christie said. “Disaster relief was something that you didn’t play games with.”

This isn’t the first time that Republicans have opposed disaster relief. In each case, the same complaints about “pork barrel spending” and “unsupervised slush funds” are voiced, but those are just code words for the core issue. They honestly don’t believe that government can play an effective role as the relief agency of last resort. That’s because they hold fast to the zombie view that government is America’s number one problem, not its solution even in these cases of extreme need.

The first debt ceiling debate is another perfect example. Republicans claimed that letting the president have increased spending authority is irresponsible. Quoting FactCheck.org, “Republicans, including House Speaker John Boehner and Rep. Michele Bachmann, have said that the president wants ‘a blank check.’ Not true. First, he’s asking to borrow money to pay obligations Congress has already approved.” Yet this characterization that increasing the debt ceiling somehow empowers Obama to spend MORE is another zombie proverb.

Another zombie maxim is that jobs are created by less government, lower taxes, and fewer regulations. This has been boiled down recently to the frequent comment heard during the last campaign that the government doesn’t create any jobs. Yet World War II is largely credited with the recovery from the Great Depression by the massive government spending which converted the country to a government run munitions factory.

These disproven zombie concepts have been summarized by Grover Norquist when he said, “Our goal is to shrink government to the size where we can drown it in a bathtub.” The problem is that, contrary to Republican claims, the vast majority of American LIKE much of what modern government does.

Should Spend More

Spending About Right

Should Spend Less

Don’t Know or No Answer

Protecting the environment

59.8%

27.9%

7.7%

4.6%

Protecting the nation’s health

66.8%

25.0%

5.6%

2.6%

Halting the rising crime rate

60.9%

28.4%

9.3%

3.0%

Dealing with drug addiction

58.2%

27.9%

9.3%

4.6%

Improving the education system

69.7%

22.1%

6.3%

1.9%

Social Security

55.7%

31.9%

6.3%

6.1%

Solving urban problems

45.5%

29.8%

12.1%

12.5%

The military, arms, and defense

17.5%

46.3%

30.3%

5.9%

Highways and bridges

38.2%

47.1%

9.6%

5.1%

Welfare

16.0%

36.1%

43.3%

4.6%

Parks and recreation

34.0%

55.2%

6.1%

4.7%

Mass transit

31.7%

47.3%

9.4%

11.5%

What we are left with is a minority segment of the voting public and their representatives who are determined to REDUCE the size of government at every opportunity. Their beliefs ARE NOT based in fact, but that doesn’t appear to bother them.

The best policies are not those that have the most likelihood to succeed. The best policies are the ones that will ultimately reduce the size of government because this is their religion.

Don’t get me wrong. I am a religious person. I DO believe in God and the power of prayer. But I don’t believe I have any right to impose my beliefs on anyone else. When it comes to governing a country, we have to depend on good data rather than religious belief to confirm that our course is going to benefit the majority of our citizens.

In the next couple of posts let’s see if we can dig into data supporting this claim that conservative republicans possess a blind unreasoning commitment to a particular point of view, why this leads to zombie politics, and why this is something that appears UNIQUE to the conservative movement.

As we saw in the previous post, our near term fiscal issues ARE NOT the result of irresponsible spending. They are the direct result of the deepest recession in our country’s history, surpassed only by the great depression. Part of the legislation put in place after the depression to prevent a repeat of that economic collapse included a social safety net. This safety net provides those who find themselves in dire financial condition, a floor of support below which they can’t drop. This set of interlocking programs also limits the economic damage of any contraction by keeping at least some money flowing from consumers to producers. It’s this safety net spending along with the loss in tax revenue from having excess capacity in workers and factories that is driving $600B of our annual deficits. That extraordinary safety net spending is decreasing and tax receipts are increasing as the economy recovers. The spending will disappear when we approach full employment and robust economic growth.

The REAL problem on our economic horizon is handling the cost of the baby boomer retirement and the impact that it will have on Social Security, Medicare, and Medicaid.

Moreover, an increasingly large portion of the debt is money that the government owes to itself because of borrowing from large entitlement programs such as Social Security and the Medicare. That’s because the money spent on discretionary programs has generally declined, as a share of the economy, while spending on mandatory programs has soared — and will only consume a larger share of the economy as the Baby Boom generation heads into retirement.

In fact, the debt owed to entitlement programs is now almost as large a share of the economy as all U.S. government debt before Ronald Reagan became president.

Washington Post

The Demographic Problem

The Baby Boomers are a large cohort of the population (70M+) that are going to be retiring over the next ten years. Programs like Social Security and Medicare use taxes from today’s payroll to pay the benefits for today’s retirees. If the population growth tracked GDP growth, this wouldn’t be a problem. When you have large demographic anomalies like the Baby Boom generation, you end up with a situation where there aren’t enough workers to support the costs of retirees.

Fortunately the solutions to demographic problems are comparatively simple. You either adjust benefits based on income, change the age at which people qualify for benefits, or change the tax formulas on those funding the benefits.

If you did some combination of those things, Social Security would be fine, but Medicare/Medicaid would still be in trouble.

The Healthcare Problem

Our healthcare system is also broken. The result is that the rate at which healthcare costs are growing exceeds the GDP growth rate. That is unsustainable under any circumstances. When you combine that problem with the undeniable demographic issues of the Baby Boomer, more systematic changes are required.

Spending in General is NOT the Problem

These inexorable demographic changes mask the fact that over the past four years we have experienced historic levels of fiscal discipline. While there was a temporary and necessary spike in spending from the Recovery Act, annual appropriations actually declined by 1.4 percent a year between 2008 and 2012 in inflation-adjusted dollars — after growing by 6.1 percent a year during the George W. Bush administration.

NY Times

Real Solutions to Real Problems

Obamacare is the first step in changing the healthcare business model. Here is a short list of the next steps to change our healthcare delivery model from a transaction model to an outcomes one. These come from a report by the Commonwealth Fund. The Commonwealth Fund contracted with Actuarial Research Corporation to estimate the cumulative impact on healthcare spending by 2023 if the set of policies were to take effect in 2014. Results showed a $242 billion savings for state and local governments, $189 billion in savings for employers, and $537 billion to consumers because of lower premiums and out-of-pocket costs.

Revise the Medicare physician fee structure and methods of updating payment so that it rewards value. The sustainable growth rate formula should be repealed and replaced with a physician payment policy that incentivizes improvements in health outcomes. Such a system would only provide increases in payments to doctors participating in innovative delivery systems. Fees would otherwise remain at 2013 levels. This will force those physicians reluctant to leave the comfort of their transaction model based medicine to change.

Medicare also should be allowed to institute competitive bidding for medical commodities. The medical commodity lobby has so far prevented Medicare from applying the sort of market-based bidding that every other industry uses to drive down costs.

Strengthen primary care and support teams for high-cost, complex patients. Primary care physicians who participate in a patient-centered medical home would receive enhanced payments. The structure would provide incentives to improve patient outcomes. It will also insure that physicians continue to enter the primary care field of practice, rather than simply being employed by vertically integrated systems like Kaiser.

Bundle hospital payments to focus on total costs and patient outcomes. Providing a single payment for all care during an episode would provide incentives for teamwork and accountability to reduce readmissions and follow-ups.

Adopt payment reforms across markets with public and private payers working together. Ensuring public and private payers employ the same or similar payment methods would reduce complexity for physicians and others in the healthcare system.

The goal is to bring the rate at which healthcare costs grow in line with GDP growth. If that can be done, then the Medicare/Medicaid problems becomes one dimensional just like Social Security and will yield to the same sorts of solutions – means tested benefits, increasing the age requirements, or changing the tax formula.

Summary

The near-term financial issues with large deficits that we face ARE NOT the result of irresponsible spending. They are the result of social safety net increases and tax receipt decreases due to high unemployment and slow financial growth. Those both can be fixed through more robust economic growth. So they are NOT systematic problems.

We DO have some systematic medium to long term problems with Social Security, Medicare, and Medicaid. Those problems are due to the demographic anomaly called the Baby Boom and our antiquated healthcare system. Social Security and Medicare need some changes to deal with the demographic issue, but that won’t fix the healthcare system. That also has to be fixed in order to preserve Medicare and Medicaid as viable programs.

Next let’s look at how some conservatives have tried to create a debt hysteria and what their motives might be.

Here’s a little bit of truth through facts about the current political turmoil over debt and deficit.

First some definitions

Deficit is the difference between what the government spends and what it takes in through various revenue sources every year. The deficit has been going down every year that Obama has been in office. In round numbers we are talking about $1T a year.

Debt is the total amount of money that the government owes. Some of that money is owed to the public and some of that money is owed to itself (primarily through Social Security bonds).

One of the measures of the health of any economy is the ratio of public debt to GDP. If the debt is growing faster than the economy, that ratio goes up. If the economy is growing faster than the debt, that ratio goes down. We are someone where in the 70’s right now and the debt is growing faster than the economy mostly because we are still recovering from a recession.

Now tactics

The goal is to reduce rate of growth in the debt, not the actual amount of debt itself.

You can attempt to reduce the rate of growth in the debt by simply attacking the debt side of the equation. The problem is that austerity, as we’ve seen in Europe, generally causes recession. Recession reduces the size of the GDP. The result is no change in debt as a percentage of GDP, and the potential to make things worse.

On the other hand, there are also practical limits to the rate at which the GDP can grow over any sustained period without also raising the specter of inflation because things like labor and raw materials tend to become more costly as demand increases and supply decreases.

Goldilocks Path

Many economists suggest that 4% growth is the optimal target for US GDP. At or around that level, we can easily sustain deficits in the range of $400B and still drive debt as a percentage of the GDP down to the 30% range. If the economy starts to grow faster, raise taxes and lower spending. If the economy slows, increase spending and decrease taxes.

The Clinton years are a good example of this. Paul Krugman summarizes, “Federal debt was higher at the end of the Clinton years than at the beginning — that is, the deficits of the Clinton administration’s early years outweighed the surpluses at the end. Yet because gross domestic product rose over those eight years, the best measure of our debt position, the ratio of debt to G.D.P., fell dramatically, from 49 to 33 percent.”

How do we get there from here?

If we take the current $1B deficits that we are running and subtract the $400B that we agree is a reasonable level to run in the best of times, let’s see what happens to the other $600B of our current deficit if the economy continues to grow.

Recessions cause increased spending in means tested social safety net programs like food stamps and Medicaid because wages fall and people lose their jobs. The result is more people unemployed or underemployed qualify for these benefits. If we were at the sort of sub 6% unemployment levels typical in past periods of 4% economic growth, we would eliminate $150B in deficit spending without any other changes to these programs. More people working means fewer would need these services.

Now let’s look at increases in tax revenues and reductions in short term stimulus spending going on today from a better employment picture and more robust growth. That total is somewhere around $450B given what we are spending today.

Assuming these figures are correct, returning to full employment and a sustained period of economic expansion also fairly quickly returns us to $400B deficits and a reduction in the debt as a percentage of GDP equation.

The good news is that we are seeing very positive signs of growth across the economy. To quote Paul Krugman, “Housing is reviving, consumer debt is down, employment has improved steadily among prime-age workers.”

We don’t have a spending problem or at this point even a growth problem.

We do have a political problem. Again quoting Krugman, “Unfortunately, this recovery may well be derailed by the fiscal cliff and/or a confrontation over the debt ceiling; but this has nothing to do with the alleged unsustainability of the deficit.”

We’ll look at that political problem next and the REAL issue that threatens the economic health of the country.

Let’s do a quick recap to figure out how where we are on negotiations to come up with a better spending and tax plan than the one set to take effect on January 1, 2013

The January 1, 2013 deadline was set two years ago by this same congress as part of a bargain to resolve another artificial crisis. That artificial crisis was created by newly elected Tea Party Republicans who refused to allow the government to borrow the money required to pay for things that Congress had already approved purchasing. At the time, both parties agreed to put in place a series of spending and tax cuts so severe that both parties agreed it would force a compromise.

The date for that compromise as well as decisions about a number of related items including Bush tax cuts, exemptions from the Alternative Minimum Tax, FICA reductions, and extensions to unemployment benefits was purposely set after the 2012 election. The thought was that the voters should have an opportunity to weigh in on these issues.

Republicans were so confident that they were going to win the 2012 election that they admitted that they didn’t have an alternate plan to deal with all of these issues if they lost. Their plan if they won was to pass the Romney budget and make the Bush tax cuts permanent.

The voters DID express their opinion.

The Democrats won the election which included a promise to raise taxes on those making more than $250,000 a year.

After the election President Obama and House majority leader Boehner began negotiations. The following graph shows how those negotiations progressed.

When negotiations broke down, Boehner and Obama were $200B apart on tax revenue and $200B apart of spending reductions. Boehner had conceded that taxes on wealthy people had to go up. Obama had conceded that future spending on Social Security and Medicare should be adjusted. All that remained to close this deal was split the difference on the numbers and work out the remaining details. Obama still had to sell this deal to his reluctant Democrats in the Senate and Boehner had to do the same with his reluctant Republicans in the House. It was those House Republicans who killed the deal when they refused to back the fall back “Plan B” bill that Boehner introduced to improve his bargaining position with Obama. Rather than strengthen Boehner, this bill demonstrated that Boehner didn’t have the Republican support he needed any of the offers he made to Obama.

The same Republicans who wanted to put these questions to the voters now appear perfectly willing to ignore the will of 2012 voters.

At this point, the only deal than can pass in the few remaining days before this Congress ends, is one that comes from a compromise in the Senate that would allow a majority of Democrats to pass a bill that then would also pass the House. This would require two things. First, Senate Republicans would have to agree to allow such a bill to come to a vote rather than filibuster it. Second, at least 26 House Republicans would have to support the bill along with the 191 Democrats.

The good news is that it if this Congress fails to get this done, the new Congress will have some time in January to act before these tax increases and spending cuts really take effect. In the new Congress, Democrats only need 17 House Republicans to pass a bill. Failing to get this deal done before the end of the year will continue to erode the confidence in the global community that the United States is capable of managing its own affairs.

The bottom line is that we live in a democracy.

We get the government that we vote for.

In 2010 voters sent a lot of “no compromise” Republicans to the House. Those members exerted their power to create this crisis and don’t appear included even after their 2012 defeat to change their behavior. While there are fewer of these sort in the new Congress, a significant number were sent back to continue the work that they began in 2010. Many of those re-elected, benefited from 2010 Republican majorities in state legislatures who took advantage of the redistricting process to create “safe” Republican districts for their representatives.

Here are just a few recent examples of Republican dysfunction.

Senate Republicans recently rejected the UN Convention on the Rights of People With Disabilities. This treaty was negotiated and signed by GW Bush. Bob Dole came to the Senate floor in his wheelchair to lobby for its passage. It essentially requires other countries to improve to our level of protection for the disabled, without requiring us to change any laws. It has already been ratified by 126 countries. Rick Santorum, who holds no elected office, lead the Tea Party charge to defeat the bill based on some loony concept of U.S. “sovereignty” which essentially calls into question the whole premise of the United Nations.

We had the embarrassing moment earlier this month when Senate Minority Leader McConnell called for a vote on Obama’s proposal to change the method in which the debt ceiling is extended. He was hoping to create an embarrassing moment for Democrats on the issue. When Senate Majority Leader Harry Reid agreed to an immediate up or down vote, McConnell was forced to filibuster his own bill in order to prevent it getting passed.

Several days later, we have the Boehner Plan B debacle where he had to admit that he didn’t have the power to negotiate a deal with Obama on the fiscal cliff.

Tom Friedman summarized it best quoting James Carville in a recent column entitled “Send in the clowns”.

The political obsessions of the Republican base — from denying global warming to defending assault weapons to opposing any tax increases under any conditions, to resisting any immigration reform — are making it impossible to be a Republican moderate, said Carville. And without more Republican moderates, there is no way to strike the kind of centrist bargains that have been at the heart of American progress — that got us where we are and are essential for where we need to go.

And

But if Republicans continue to be led around by, and live in fear of, a base that denies global warming after Hurricane Sandy and refuses to ban assault weapons after Sandy Hook — a base that would rather see every American’s taxes rise rather than increase taxes on millionaires — the party has no future. It can’t win with a base that is at war with math, physics, human biology, economics and common-sense gun laws all at the same time.

The problem is NOT one of leadership. Clearly both Obama and Boehner made significant concessions and had a deal on the table that made both parties uncomfortable. But that deal didn’t get done because a significant portion of the elected Republicans in the House blocked it.

If some voters continue to reward the sort of terrorist behavior that we’ve seen from Tea Party Republicans, there is precious little that can be done. Our system allows them to effectively shut down the government, if that’s what they choose to do and they have the votes to do it. At this point, this group appears determined to raise taxes on everyone, cut spending, and likely cause a recession rather than accept a compromise with a President they despise.

As far as what we do in the meantime, we trust in the wisdom of voters to fix the problems created in 2010. Ronald Reagan said it best during his debate with Jimmy Carter, “We don’t negotiate with Terrorists”.

As an aside, the whole concept that the economic impacts vary based on the type of tax increase is hard to swallow. If tax bills go up and that’s a bad thing, then how can there be any difference. And if the economy can survive raising tax bills from limiting deductions, why wouldn’t it also survive from a similar simpler increase in rates?

As that realization is dawning on the American people, the fundamental bargaining position of Republicans is eroding. The Republicans have said that they feel that they have leverage in these negotiations because if the country goes over the fiscal cliff and the economy suffers, Obama will be blamed.

The Obama administration, however, has positioned this differently in the minds of voters. What they have said is that Republicans would rather raise taxes on everyone in order to avoid raising taxes on the wealthy. They have already trotted out data to support the claim that a middle class tax hike will damage the economy by reducing consumer spending. They have trotted out billionaires and small business owners who have said that they are WAY more concerned about the economic impacts of middle class tax increases. The White House has also pointed out that there is a bill before the House right now which extends only middle class tax cuts. Obama challenges Republicans to pass that bill today while the rest of spending reductions are worked out. Obama only needs 17 Republican House votes to pass it. Some Republicans have already said that if Boehner brought the bill up, it would pass.

Some House Republicans are already saying that the House should give Obama the middle class tax cut that he is asking for and then hold him accountable for the economic collapse that they’ve predicted will occur. This strategy also provides them some political cover since the only thing that they voted for was the middle class tax cut, rather than voting for a tax hike on the wealthy.

The problem that others have with this strategy, however, is that it would be perceived as a clear win for a President that they detest. It would also undermine their claim that this President can’t lead and is ineffective. And if the predicted economic collapse from raising top tax rates fails to materialize it will further weaken Republican prospects in 2014.

What is also interesting is what a low profile Paul Ryan has been keeping since the election. I believe he also knows that this is a losing proposition and would rather have it all fall on Boehner’s shoulders.

That only further confirms that a deal is going to get done. At the very least, it will involve passing the Senate resolution to extend the middle class tax cuts for another year, approving another debt ceiling raise, and kicking spending cuts down a road until the new congress is sworn in.

A liberal, moderate, and conservative walked into bar; the bartender looked up and said, “Hello Mitt”.

This new Romney showed up at the debates. Let’s see how he compares with the old one.

TaxesRomney 1.0 promised to cut taxes 20% across the board in order to stimulate the economy. Romney 2.0 said everyone’s tax bills wouldn’t change. Rate changes will be balanced by deduction reductions. No details yet. When pressed on how he could keep all of these promises and also reduce the deficit, Romney 2.0 said that this revenue-neutral plan would spur economic growth just like his old plan, even though this new one is putting no more money in the hands of consumers or job creators.

Healthcare ReformBoth Romneys are going to repeal Obamacare, but Romney 2.0 claimed his plan covered popular things like pre-existing conditions. After the debate, his campaign admitted his “plan” relied on every state passing their own version of Romneycare.

Deferred Action for Illegal AliensRomney 2.0 said he would support the President’s action. The next day his campaign said the real plan was to end the program if elected and only honor those deferrals issued between now and then.

RegulationRomney 2.0 provided a full throated endorsement of financial regulation including large parts of the Dodd Frank bill which Romney 1.0 promised to repeal. No details on potential replacements.

Medicare
Romney 1.0 wanted to reform Medicare as part of a larger effort to reduce the deficit. Romney 2.0 says that he plans to keep Medicare unchanged for anyone who wants to use it now and into the future. In addition he will create an alternate voucher program in hopes that everyone will move from the guaranteed program to the program where they have to take some of the risk regarding the cost of their care once they are retired. He hasn’t provided any details on how running two competing healthcare plans will be cheaper than running one.

47%Romney 1.0 claimed that Obama’s policies have created a pervasive culture of dependency and entitlement that threatens the very fabric of democracy. Romney 2.0 apologized, “I said something that’s just completely wrong.”

Truth in AdvertisingRomney’s pollster said “We are not going to let our campaign be dictated by fact-checkers”. Romney 2.0 claimed that when “any time there’s anything that’s been amiss (in our advertising), we correct it or remove it.” When asked for examples, his campaign couldn’t produce any.

Perhaps there isn’t as much difference between Romney 1.0 and Romney 2.0 after all.

If you take Politifact.com as any guide, the Democratic Convention that just concluded spent a lot more time discussing facts than the Republican Convention in Tampa. There were only two statements tracked by Politifact that rated a “false”. One by Delaware Governor Jack Markell who used a Romney quote out of context about firing people who provide poor healthcare as indication of how Romney would respond to a potential factory closing. The other was the claim by Rep. James Clyburn that Republicans stood on the sidelines when Social Security, Medicare, and Medicaid were created. While there was vigorous debate about all three programs, a majority of Republicans supported all three in the final vote.

That said there were still issues that should be mentioned because they weren’t entirely accurate.

On the debt, Obama said, “Independent analysis shows that my plan would cut our deficits by $4 trillion. Last summer, I worked with Republicans in Congress to cut $1 trillion in spending.”

The problem with this statement is that there was no mention of the timeline on the $4T which could give the impression that the current $1T deficit would be eliminated. The facts are that a the end of the most recent 10-year budget proposal, the debt would be 76% of GDP. That represents and increase of approximately 4% of the 74% debt figure today. Simpson-Bowles, by comparison, would reduce the debt as a percentage of the GDP over the same period to 60%. The bulk of the deficit reductions comes from tax increases on the wealthy rather than spending cuts.

On a related topic, Obama also said that savings from winding down the wars in Iraq and Afghanistan would be used to rebuild roads, bridges, schools and runways. The problem is that those wars were financed with “deficit” dollars. So ending those wars doesn’t magically free up money for other projects. Any infrastructure spending using the same model that funded the Iraq and Afghanistan wars will increase the deficit in the same way the wars have done.

Obama referenced trade agreements that he signed which will improve our exports. What he didn’t say is that the Bush administration negotiated those agreements. Obama still had to get those agreements through an obstructive Congress, but he can’t take full credit for the final product.

Obama implied that Romney would turn Social Security over to Wall Street. While Romney did support this position in 2008, he no longer does. Obama does get positive marks for including modest Social Security reform in his latest budget proposal.

Joe Biden and the film that aired before Obama spoke referenced an incident during Obama’s mother’s hospitalization for breast cancer. She did have a dispute with an insurance company, but it wasn’t over health benefits. It was for disability pay. So the clear line from the death of Obama’s mother to healthcare reform, is really a more complicated story than the Democrats have been telling.

Biden also repeated the line that Romney was willing to let Detroit go bankrupt. The actual WSJ opinion piece that Romney wrote didn’t say that. Only the headline, which Romney didn’t write. Romney did, however, support that headline in a TV appearance. What Romney was recommending a “managed bankruptcy” and claimed that the private sector could finance that. The Obama administration explored that concept but couldn’t find any private firms willing to participate, so the government essentially funded the managed bankruptcy and reorganization of GM and the sale of Chrysler to Fiat. They do, however, deserve credit for the results of this actio.

Biden claimed the the Romney plan would cause Medicare to go bankrupt. The inaccurate term here is “bankrupt”. The reference here was to Medicare Part A which is funded by a payroll tax paid by employees and employers. The administration negotiated a $716B savings in the ACA which would benefit this fund and extends its life well past the 2016 date. Romney wants to repeal the ACA which will eliminate this savings and shorten the life of the Medicare trust fund. The fund won’t technically go bankrupt, but if it does run low on fund, the government is going to have to respond to make up the shortfall or cut benefits.

Biden cited a new territorial tax as being part of Romney’s proposal and that it will create 800,000 overseas jobs. Romney does propose as part of his corporate tax reform initiative to exempt foreign corporate profits from domestic US taxes. The study cited by Biden does support Biden’s claim with regard to foreign employment gains, though it doesn’t specifically examine Romney’s proposal. The study does not suggest that these foreign jobs will come at the expense of US jobs.

Finally Biden claimed that Romney’s tax plan would include an effective tax increase of $2,000 for middle class families. This is based on an analysis of the Romney plan by the nonpartisan Tax Policy Center. Romney has claimed that his tax reductions would be revenue neutral because he would simultaneously close man tax loopholes, but he hasn’t said which ones he would close. The Tax Policy Center in their analysis said that the only way to make the math work, would be to close some tax loopholes like the deduction for mortgage interest that benefit the middle class. The Romney campaign disputes these findings but hasn’t provided an alternate explanation of how their math would work. In the absence of this explanation, Biden’s claim has to stand.

The quick summary is that the Republicans generally were significantly more fact-challenged than the Democrats and also shared far less detail about what they planned to do than the Democrats. The Democrats did their fair share of fact stretching, but none of these compared with the many “pants on fire” lies that were core portions of the Republican convention message.